Any diagnosis of the health of the British high street must begin by sorting the singular from the general. So it is with the slew of hard-luck stories there has been from the shopping sector in the past few weeks. Take the collapse of the Jane Norman fashion chain: that is largely a story of a decent business sold to a posse of Icelandic investors, loaded up with debt, and then badly caught out in the credit crunch. Or Habitat: a once-trendy interior design retailer whose style was effectively aped and possibly even bettered by Ikea. TJ Hughes: a traditional department store group that was, well, just a little too traditional. These are sad cases, to be sure, but not so different from the rest of the business-casualty ward.

But add in the closure of up to 180 shops by the confectioner Thorntons, 50 more by Carpetright, the fact that Moben Kitchens, Sharps Bedrooms and Dolphin Bathrooms are all now in administration – and a bigger and more alarming picture emerges. This is feel-bad Britain in all its grim glory – a consumer economy still recovering from the hangover left by the huge credit boom, and in no state to withstand the spending cuts that have just begun. Other macro-economic indicators confirm this: in May, retail sales slid 1.4%, wiping out the April boom from the burst of warm weather and royal wedding enthusiasm. Consumer confidence, as measured by GfK NOP, is lower than at any point in the whole of last year.

What is curious about this protracted malaise is that it comes years after Lehman Brothers fell over and Britain emerged from recession. Then again, the labour market is years from recovering its pre-recession composure and inflation-adjusted wages have been shrinking for well over a year now. As Mervyn King, the head of the Bank of England, has been pointing out, the British are undergoing the biggest squeeze in living standards since the 20s.

From all this two policy conclusions flow. First, it is highly risky to engage in tightening – whether of government budgets or of bank interest rates – now. The economy is already in a feeble state, with consumers and businesses still precariously leveraged. As reported in this paper last week, the banker who now looks after the mortgages made by Bradford & Bingley and parts of Northern Rock foresees a "tsunami" of repossessions if official interest rates edge up. Second, when it comes to micro-economic policies, it is time to rethink what our high streets are for. If Britain is all shopped out and years of retail contraction lie ahead, then town halls and Whitehall should be encouraging a greater mix of buildings on UK high streets: shops, yes, but flats and community leisure centres too. Better that than boarded-up storefronts.